McMILLIN ALBANY v. S.C.

Amicus Curiae Brief of Law Offices of Brian J. Ferber, Inc., and Benedon & Serlin, LLP

Cal.July 29, 2016

Wy - SUPREME COU FILE. 5229762 SUPRENc COURT COPY eo 9m Frank A. McGuire Clark IN THE SUPREME COURT OF CALIFORNIA Deputy McMILLIN ALBANY,LLC,etal., Petitioners, VS. THE SUPERIOR COURT OF KERN COUNTY, Respondent. After a Decision by the Court of Appeal, Fifth Appellate District - Case No. F069370 AMICI CURIAE BRIEF OF LAW OFFICES OF BRIAN J. FERBER, INC. AND BENEDON & SERLIN, LLP *BRIAN J. FERBER [SBN 156571] *GERALD M.SERLIN [SBN 123421] LAW OFFICES OF BRIAN J. FERBER, INC. WENDYS. ALBERS [SBN 166993] 5611 Fallbrook Avenue BENEDON & SERLIN LLP WoodlandHills, California 91367 22708 Mariano Street Telephone: (818) 888-0820 Woodland Hills, California 91367 Facsimile: (818) 888-6107 Telephone: (818) 340-1950 E-mail: bferberesq@aol.com Facsimile: (818) 340-1990 E-mail: gerald@benedonserlin.com E-mail: wendy@benedonserlin.com Attorneysfor Amici Curiae LAW OFFICESOF BRIAN J. FERBER, INC. and BENEDON & SERLIN, LLP TABLE OF CONTENTS Page TABLE OF AUTHORITIES ............00. 00. c cence eee eens 3 I. INTRODUCTION .........0. 0.0. c ece ene eee 6 IL. LEGAL DISCUSSION......... 000.0.eee 9 A. The Legal Backdrop: Construction Defect Litigation Prior To SB 800 2.0...eens9 B. The Legislative Backdrop: The Legislature Enacts SB 800 To Codify A Set Of Residential Construction Standards And Create Liability For Economic Loss In Construction Defect Litigation ....................5. 13 The Liberty Mutual Decision Is Correct ............... 16 A Contrary Holding Will Create An Irreconcilable Conflict Between HomeownerInsurers And Builders .... 22 If. CONCLUSION ........0. 00.00 ccc ee eee ens 27 CERTIFICATE OF WORD COUNT .............. 00: cece eee eee 28 TABLE OF AUTHORITIES Page Cases Aas v. Superior Court (2000) 24 Cal.4th 627 2.2.0...eee passim Amerigraphics, Inc. v. Mercury Cas. Co. (2010) 182 Cal.App.4th 1538.2... 0...eeee eee 24 Aryeh v. Canon Bus. Solutions, Inc. (2013) 55 Cal.4th 1185 2.0...eeeee ee 17 California Assn. ofHealth Facilities v. Department ofHealth Services (1997) 16 Cal.4th 284 20...eeeeee ees 17 Dowv. Holly Mfg. Co. (1958) 49 Cal.2d 720 2.0...ceeeens 9 Fieldstone Co. v. Briggs Plumbing Prods., Inc. (1997) 54 CalApp.4th 3572...ee9 Fleming v. Safeco Ins. Co. ofAmerica (1984) 160 Cal.App.3d 31 20.2...eeeeee 24 Greystone Homes, Inc. v. Midtec, Inc. (2008) 168 Cal.App.4th 1194...............0.... 00000. 7, 13, 15, 16 Jimenez v. Superior Court (2002) 29 Cal.4th 473.000... ccc cece cece ee eeeeeeeueeeeeeees 9 KB Homev. Superior Court (2003) 112 CalApp.4th 1076..........0 0.0... ccc eee eee 12 KB HomeGreater Los Angeles, Inc. v. Superior Court (2014) 223 Cal.App.4th 1471 2.0.0.0...ee eee ee 25 Kriegler v. Eichler Homes,Inc. (1969) 269 Cal.App.2d 224 1.0...2eeeee 9 Lantzy v. Centex Homes (2003) 31 Cal.4th 363 2...cee13, 15 Liberty MutualIns. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 2.0...eeeeee passim Reynolds v. Bement (2005) 36 Cal.4th 1075 20.0.eee17 San Francisco Unified School Dist. v. W.R. Grace & Co. (1995) 37 Cal.App.4th 1318 2... eee eee 12 Seely v. White (1965) 63 Cal.2d9 20...ceceeet9 Standard Pacific Corp. v. Superior Court (2009) 176 Cal.App.4th 828 .. 0...eeeee 7 Inre JW. (2002) 29 Cal.4th 200 0...0ceee eee 19 Zamora Vv. Shell Oil Co. (1997) 55 Cal.App.4th 204 20.0.0.eeeee eee 10 Statutes and Regulations Civ. Code, AS 7, 13 § 8960.eecteee tenes 15, 16, 20 S15 I16, 18, 22 acece eee een eee 16, 22 Ioa16, 22 § 916, subd. (C) 2...ceceeens 22 I 16, 22 $918cetteeee nes 16, 22 16, 18, 23 8981ceceeee teenies 18, 19, 21 16 § 943octetee ees passim § 943, subd. (a) 2...ees 18-20 § 944 Loet neees 16, 18, 20, 21 Sae 21 § 945.5, subd. (b) 2...eetenes 25 10 Cal.C.Regs., § 2695.S(e) 26.teeneee eens 20 § 2695.7(D) 200eteeeens 20 § 2695.7(e) ... 06. eee eee Bee eee ee eee eee eee ee eeee 21 § 2695.7(h) 2.0.c e eee nee 21 4 Texts Croskey,et al., Cal. Prac. Guide: Insurance Litigation (The Rutter Group 2015) 9 12:926 oo. ccc eee eee eee c eee etn nett bbeeeeeenes 21 $229762 IN THE SUPREME COURT OF CALIFORNIA McMILLIN ALBANY, LLC,et al., Petitioners, vs. THE SUPERIOR COURT OF KERN COUNTY, Respondent. After a Decision by the Court of Appeal, Fifth Appellate District - Case No. F069370 AMICI CURIAE BRIEF OF LAW OFFICES OF BRIAN J. FERBER, INC. AND BENEDON & SERLIN, LLP I. INTRODUCTION In the late 1990’s, California’s Legislature was confronting a maelstrom. Construction defect litigation wasat an all time high, which in turn increased housing costs and created an “affordable housing crisis.” The targets of the litigation, builders, subcontractors, and insurers, voiced their concerns. Compounding these problems, this Court rendered a controversial decision, Aas v. Superior Court (2000) 24 Cal.4th 627, holding that 6 homeowners could not recoverin tort for defects that had not caused physical injury or property damage (i.e., the “economic loss rule”), which left homeowners without an adequate remedy to resolve construction defect claims. To ameliorate this crisis, our Legislature enacted SB 800, codified at Civil Code section 895, et seq. This so-called “Right To Repair Act” (Greystone Homes, Inc. v. Midtec, Inc. (2008) 168 Cal.App.4th 1194, 1202 ( “Greystone”’)) or “Fix-it” statute (Standard Pacific Corp. v. Superior Court (2009) 176 Cal.App.4th 828, 830) abrogated the economic loss rule, legislatively superseded Aas, and created a statutory scheme which provides homeowners with a remedy for a violation of a residential construction “standard”that causes only “economic loss.” As such, SB 800 was designed to both streamline claims based ona violation of construction standards-- by resolving them outside the litigation process -- and provide homeowners a mechanism to have violations repaired before they could cause property damageor personal injury. In Liberty MutualIns. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 (“Liberty Mutual’), the Fourth District Appellate District, Division Three, recognized that SB 800 was not enacted in a vacuum, but arose from this backdrop of existing construction defect law. After carefully analyzing the legislative history and statutory language of SB 800, the V Civil Code. Unless otherwise indicated, all statutory references are to the appellate court correctly held that the Right to Repair Act did not intend to eliminate commonlaw rights and remedies where actual damagehas occurred. Twoyearslater, the opposite result was reached in this case. However, the McMillin opinion from the Fifth Appellate District ignores the Legislature’s intent and turns well-settled principles of statutory construction on their head. Principles of statutory construction makeclearthat legislative intent to overturn established law must be clearly expressed and apparent from the circumstancesofthe statute’s enactment. Neither is present in this case. Rather, an examination of the statutory language, when construedin light of the circumstances of its enactment, demonstrates that Liberty Mutual’s statutory analysis is both legally sound and compelling. Moreover, Liberty Mutual reached the correct result from a commonsenseperspective. If a catastrophic loss occurs and causes property damageorpersonalinjury, property ownersand their insurers must act quickly. If allowed to stand, the McMillin opinion will effectively create an irreconcilable conflict between builders (who are accorded up to a year to address a violation of standards) and property insurers (who must expeditiously adjust existing property losses and conductrepairs where claims are covered). I. LEGAL DISCUSSION A. The Legal Backdrop: Construction Defect Litigation Prior To SB 800. In Dow v. Holly Mfg. Co. (1958) 49 Cal.2d 720, this Court held a builder maybeliable in negligence whendefects in a product incorporatedinto a home-- in that case, heating system components -- caused injury to third parties. (/d. at pp. 727-728.) Seven years later, in Seely v. White (1965) 63 Cal.2d 9, the Court adopted the “economic loss rule” which limited damages for strict liability or negligence to physical harm to persons or property.” (id. at p. 18.) In Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 227, the appellate court recognized that “mass produced development homes” are considered “products” for purposesofstrict liability. Almost thirty years after Kriegler, a homebuilder (Fieldstone) sued, understrict liability, negligence, and indemnity theories, for the costs of replacing sinks installed by a sub-contractor that had rusted and chipped prematurely due to inadequate spot welding and coating. (Fieldstone Co. v. Briggs Plumbing Prods., Inc. (1997) 54 Cal.App.4th 357, 362.) Because no other property had been damaged, the appellate court denied recovery. The court explained: “[T]he line between physical injury to property and economic u Strict liability damages do not include economic loss, which includes “damagesfor inadequate value, costs ofrepair and replacementofthe defective product or consequentloss ofprofits -- without any claim ofpersonal injury or damagesto other property. . . .”. (Jimenez v. Superior Court (2002) 29 Cal.4th 473, 482, citing Sacramento Regional Transit Dist. v. Grumman Flexible (1984) 158 Cal.App.3d 289, 294, internal quotation marks omitted.) 9 loss reflects the line of demarcation betweentort theory and contract theory. ‘Economic’ loss or harm has been defined as damages for inadequate value, costs of repair and replacementofthe defective product or consequentloss of profits-without any claim ofpersonalinjury or damagesto other property... .” (Id. at pp. 363-364, internal quotation marks omitted.) Accordingly, a manufacturer maybestrictly liable for physical injuries caused to persons or property, but not for purely economic losses. (/bid.) In so ruling, the Fieldstone court rejected the homebuilder’s argument that the economicloss rule did not foreclose tort recovery because the sink defects caused injuries to other, nondefective portions of the sinks, and thus the requisite damage to “other property” had occurred. (54 Cal.App.4th at p. 364.) In the court’s view, the manifestations of damageresulting from the defects were not the kind of damageto “other property” that would take the case outside the scope of the “economicloss rule.” (/d. at p. 366.) As such, defendant could not beliable understrict liability or negligence theories. (/d. at pp. 366-367.) A similar result was reached the following month in Zamora v. Shell Oil Co. (1997) 55 Cal.App.4th 204. In Zamora, the manufacturer of defective pipes washeldliable for repair costs incurred bythirty-four homeowners. (/d. at pp. 206-207.) Fourteen of the thirty-four homeowners, however, experienced no damage to other property from the defective pipes. (/d. at p. 207.) Citing the economic loss rule, the appellate court held that the manufacturer wasnot liable for the fourteen claimsthat did not result in other property damage. (/d. at pp. 211-212.) 10 _ Three years later, this Court solidified the broad application of the economiclossrule in Aas, supra, 24 Cal.4th at pp. 635-636. Favorably citing both Fieldstone and Zamora,this Court upheld the exclusion of evidence of construction defects that had not yet caused physical damage in a lawsuit involving allegations of negligence against a homebuilder stemming from alleged building codeviolations. (/d. at pp. 632-634, 640.) Relying on the economic loss rule, the Court held that homeowners could not recoverin tort for defects that have not caused physical injury to persons or property. In reaching this conclusion, the Court reviewed half a century of cases treating the troublesome margin betweentort and contract law, and noted that it was not announcing a new rule but was merely “[a]pplying settled law limiting the recovery of economiclosses in tort actions... .” (/d. at p. 632.) The Court recounted that lower courts had applied the economiclossrule in construction defect cases to preclude the recovery of purely economiclosses: “Speaking very generally, tort law provides a remedy for construction defects that cause property damage or personal injury. Focusing on the conduct of persons involved in the construction process, courts in this state have found such a remedy in the law of negligence. Viewing the home as a product, courts have also found a tort remedyin strict products liability, even when the property damage consists of harm to a sound part of the home causedby another, defective part. For defective products and negligent services that have caused neither property damage nor personal injury, however, tort remedies have been uncertain. Any construction defect can diminish the value of a house. But the difference betweenprice paid and value received, and deviations from standards of quality that have not resulted in property damageorpersonal injury, are primarily the domain of contract and warranty law or the law of fraud, rather than of negligence. In actions for negligence, a manufacturer’s liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone. This general principle, the so-called economiclossrule, is the primary obstacle to plaintiffs’ claim.” 11 (Aas, supra, 24 Cal.4th at pp. 635-636, citations and footnotes omitted; see also, e.g., KB Home v. Superior Court (2003) 112 Cal.App.4th 1076, 1079 [“The economicloss rule bars recovery in tort for economic damages caused by a defective product unless those [economic] losses are accompanied by some form of personal injury or damage to property other than the defective productitself]; San Francisco Unified School Dist. v. W.R. Grace & Co. (1995) 37 Cal.App.4th 1318, 1327 [“Until physical injury occurs -- until damagerises abovethe level of mere economicloss -- a plaintiff cannotstate a cause ofaction forstrict liability or negligence’’].) The Aas majority observed that “[h]ome buyers in California already enjoy protection undercontract and warranty law for enforcementofbuilders’ and sellers’ obligations; under the law ofnegligenceandstrict liability for acts and omissions that cause property damage or personalinjury; underthe law of fraud for misrepresentations about the property’s condition; and an exceptionally long 10-yearstatute oflimitations for latent construction defects. While the Legislature may add whatever additional protections it deems appropriate, the facts of this case do not present a sufficiently compelling reason to preemptthe legislative process with a judicially created rule oftort liability.” (Aas, supra, 24 Cal.4th at pp. 652-653, citation omitted.) The Court addedthat the “Legislature, whose lawmaking poweris not encumberedby precedent, is free to adopt a rule like that proposed in [Chief Justice George’s] concurring and dissenting opinion.” (Aas, supra, 24 Cal.4th at p. 650.) The Chief Justice, in turn, invited the Legislature “to correct this court’s unfortunate misstep in the developmentof the law” and “recognize an 12 appropriate and limited right to recover costs to remedy serious safety code violations” before appreciable property damageorpersonalinjury occurs. (/d. at p. 673.) B. The Legislative Backdrop: The Legislature Enacts SB 800 To Codify A Set Of Residential Construction Standards And Create Liability For Economic Loss In Construction Defect Litigation. Shortly after Aas was decided, in 2002, the Legislature accepted Chief Justice George’s invitation and passed SB 800, legislation which revised-- in part -- the rules for construction defect litigation. (See Lantzy v. Centex Homes(2003) 31 Cal.4th 363, 374 fn. 8 (“Lantzy’’); see also, e.g., Greystone, supra, 168 Cal.App.4th at p. 1202 [“In response to the holding in Aas, the Legislature enacted Civil Code section 895, et seq.”]; see also ibid. [SB 800 “abrogates the economiclossrule, and legislatively supersedes Aas’’].) As SB 800’slegislative history confirms: e “The bill responds to concerns from homeownersand the Consumer Attomeys ofCalifornia over the consequences ofAas v. Superior Court (2000) 24 Cal.4th 627, which held that defects must cause actual damageor personal injury prior to being actionable in tort. The bill also responds to concerns expressed by builders, subcontractors, and insurers over the costs of construction defectlitigation [and its] impact on housing costs in the state.”” (Senate Judiciary Committee analysis of SB 800 as amended Aug. 28, 2002 (2001-2002 Regular Session), p. 3].) ‘““Rather than requiring resort to contentions about the significance of technical deviations from building codes, the bill specifies the standards that building systems and components must meet.’ [{] In addition, the standards are a statutory 13 ‘floor’ for construction defect standards.” (/d. at pp. 3-4.) “In a controversial decision, Aas v. Superior Court (2000) 24 Cal.4th 627, the California Supreme Court found that homeowners had no cause of action for negligence against the builders of their homesforlatent defects under California’s ‘economic loss rule.’ Essentially, the court held that since there had been no actual damageor injury to anyone from the defect, the plaintiff homeowners had no cause of action for negligence against builders. Chief Justice George registered a strong dissent in Aas, pointing out thatit defied commonsenseto require that there actually be an injury from a fire before a homeownercould bring an action in negligence against a builder for a defective firewall. Both the majority of the Court and the Chief Justice urged the Legislature to revisit the economic loss rule. [{]] This bill is intended to address the perceived inequity of the Aas decision and give homeowners the ability to have specified defects in the construction of their homes corrected before the defects cause actual harm or damage.” (State and ConsumerService Agency analysis of SB 800, pp. 1-2, emphasis added].) “This bill is intended to respond to the affordable housing crisis by addressing concernsraised by builders and insurers about increased litigation costs related to alleged construction defects and concerns raised by homeowners and consumer[attorneys] overthe effects of a recent Supreme Court decision (Aas v. Superior Court (2000) 24 Cal.4th 627) which held that builders cannot be held liable for negligence for a construction defect unless actual damages (death, bodily injury, or property damage) have occurred.” (California Housing Finance Agencyanalysis of SB 800,p. 1.) “Definition of Construction Defect. A principal feature ofthe bill is the codification of construction defects. For the first time, California law would provide a uniform set of standards for the performanceof residential building components and systems. Rather than requiring resort to contentions aboutthe significance oftechnical deviations from building codes,the bill specifies the standards that building systems and components must meet. Significantly, these standards effectively end the debate ofthe controversial decision in the Aas case to the effect that homeowners _may_not_recover_for construction defects unless and until those defects have caused death, 14 bodily injury, or property damage, no [matter] how imminent those threats may be.” (Assembly Committee On Judiciary, SB 800 (Burton) - As Amended: Aug.25, 2002, p. 2, emphasis added].) Accordingly, the legislative history establishes that SB 800 was enacted to reduce construction defectlitigation by specifying “standards” applicable to residential construction and by providing homeowners with a remedy for construction defects which have not yet caused immediate property damage and/or bodily injury, i.e., eliminating the common law limitation of the economic loss rule. In so doing, the Legislature intended to create a mechanism by which homeowners could identify and fix existing/on-going construction defects before those defects caused actual property damage or personalinjury. SB 800 (the “Act’’?) accomplishes these goals by establishing a set of “standards” for new residential construction, and providing homeowners with a cause of action against, inter alia, builders for violation of those standards. (Lantzy, supra, 31 Cal.4th at p. 374 fn.8, citing Section 896; Greystone, supra, 168 Cal.App.4th at p. 1210.) The standards cover waterintrusion,structural, soils, fire protection, plumbing and sewer, electrical, and other areas of construction. (§ 896.) The Act provides that the standards “are intended to address every function or componentofstructure.” (§ 897.) The Act further providesthat “[t]o the extent that a function or componentofa structureis not addressed by the standards,it shall be actionableif it causes damage,”i.e., the commonlaw rule. (§ 897.) Additionally, the “Act makes clear that upon a showingofa violation of an applicable standard, a homeowner may recover economic losses from a 15 builder without showingthatthe violation caused property damageorpersonal injury.” (Greystone supra, 168 Cal.App.4th at p. 1202, emphasis added.) Thus, Section 942 states that homeowners can make a claim for violation of Section 896 by showingthat the home “doesnot meet the applicable standard” without any “further showing of causation or damages.” (§ 942; see also § 944.) Finally, the Act sets out a prelitigation procedure to which a “claimant” must adhere in order to recover under the statutory scheme. (§ 943.) The claimant mustinitially provide a written notice of claim, setting out how “the construction ofhis or her residence violates any of [SB 800’s] standards... .” (§ 910; Greystone, supra, 168 Cal.App.4th at p. 1211.) The builder can then address the concerns expressed by homeownersby providing inspections (§ 916), offering repair (§ 917), or actually repairing and/or arranging for repair (§§ 918, 921). (Greystone, supra, 168 Cal.App.4th at p. 1211.) Damages for violations of construction standards that do not cause other property damage or personalinjury, are then limited to repair-related costs, including relocation and lost business income under certain circumstances. (§ 944.) The prelitigation procedure provides builders almost a full year to remedy violations of construction standards. (See §§ 910, 913, 916-918, 921.) C. The Liberty Mutual Decision Is Correct. In Liberty Mutual, supra, 219 Cal.App.4th 98, the appellate court concluded that the Right to Repair Act did not intend to replace all construction defect law. Specifically, Liberty Mutual held that the Act does 16 not abrogate a homeowner’s rights and remedies which have always existed under the common law. (See id. at p. 101.) Liberty Mutual comports with well-settled principles of statutory construction. “[T]here is a presumption that a statute does not, by implication, repeal the common law. Unless expressly provided,statutes should not be interpreted to alter the common law, and should be construed to avoid conflict with commonlaw rules. A statute will be construed in light of common law decisions, unlessits language clearly and unequivocally discloses an intention to depart from,alter, or abrogate the common-law rule concerning a particular subject matter ....” (Goodman v. Zimmerman (1994) 25 Cal.App.4th 1667, 1676, citations and internal quotation marks omitted, cited with approval by California Assn. ofHealth Facilities v. Department ofHealth Services (1997) 16 Cal.4th 284, 297 (“Health Facilities”). Thus, courts presumethata statute does not, by implication, repeal the common law except when no rational basis exists for harmonizing two potentially conflicting laws. (Health Facilities, supra, 16 Cal.4th at p. 297; see also, e.g., Aryeh v. Canon Bus. Solutions, Inc. (2013) 55 Cal.4th 1185, 1193; Reynolds v. Bement (2005) 36 Cal.4th 1075, 1086, abrogated by Martinezv. Combs (2010) 49 Cal.4th 35, 62-66.) The Liberty Mutual court properly found that the language of the Act does not evince a clear and unequivocalintent to abrogate commonlaw rights and remedies for construction defect claims. (See Liberty Mutual, supra, 219 Cal.App.4th at p. 105 [“Nothing in the Act supports a conclusion it rewrote the law on commonlawclaimsarising from actual damagessustainedas a result 17 of construction defects”].) The court’s reading of the statutory language is supported by: e The Act’s statutory provisions, which acknowledgethat covered claims-- for violation of construction standards -- can co-exist with commonlaw claims, and disallows duplication of damages. (See § 931 [“[i]f a claim combines causes of action or damages not covered by this part, . . . the claimed unmet standards shall be administered according to this part, . . .”]; § 943(a) [where a non-covered claim yielding damages are duplicative of a covered claim for violation of construction standards, the damages “awarded for the items set forth in Section 944 in such other cause of action shall be reduced by the amounts recovered pursuantto Section 944’’}; § 944 [any damages awarded for other causes of action shall be reduced by amounts recovered pursuant to the Act for violation of the standards]; Liberty Mutual, supra, 219 Cal.App.4thatp. 107.) e The Act’s detailed time frames and provisions for notifying builders, identifying, and inspecting “claimed unmetstandards.” Such provisions, which give builders almost a year to remedy violations of standards, would be unnecessary and nonsensical where there is a catastrophic, one-time unexpected loss, whichresults in immediate property damage and/or ‘personal injury. Moreover, requiring compliance with the Act in that situation would effectively extinguish the subrogation rights of homeowners’ insurers who have a duty to expeditiously address coveredlosses, and no language in the Act supports an intent to extinguish subrogation rights. (See generally §§ 910-921; Liberty Mutual, supra, 219 Cal.App.4th atpp. 105-107.) As the history of SB 800 illustrates, the impetus of the Act was to ““make major changes to the substance and process of the law governing construction defects’” by providing homeowners an avenue to have construction defects repaired “‘before the defects cause actual harm or damage.” (Liberty Mutual, supra, 219 Cal.App.4th at pp. 103-104.) Thus, the Act was groundbreaking reform because it allowed for the prompt and 18 early resolution of construction defect claims without having to litigate the application of the economic loss doctrine. In disagreeing with Liberty Mutual’s statutory analysis, the Fifth Appellate District in McMillin turnstherules ofstatutory construction on their head. Instead of examining whether the statutory language evinces a clear intent to supplant all commonlaw construction defect claims, the McMillin court focuses on the absence of specific language in the Act expressly excluding commonlaw causesofaction such as negligence and strictliability. In other words, the McMillin court inverts the rule of statutory construction by assuming that the common law does not apply unless expressly stated otherwise. For example, the McMillin court places great weight on the fact that “[n]Jeither list of exceptions, in section 943”or in section 931,” includes commonlaw causesof action, such as negligenceorstrict liability.” (Typed opn., p. 13.) The court then states that “‘[i]f the Legislature had intended to 2 Section 943 states in pertinentpart: “In addition to the rights underthistitle, this title does not apply to any action by a claimantto enforce a contract or express contractual provision, or any action for fraud, personal injury, or violation of a statute.” (§ 943, subd. (a).) The expressio unius est exclusio alterius principle -- the express mention of one thing excludesall other others -- has no application to the construction of section 943 because application of that principle “would contradict a discernible and contrary legislative intent.” (/n re J.W. (2002) 29 Cal.4th 200, 209-210.) 4 Section 931 states in pertinentpart: “Ifa claim combines causes of action or damagesnot covered bythis part, including, without limitation, personal injuries,class actions, other statutory remedies, or fraud-based claims, the claimed unmet standards shall be administered accordingto this part.” (§ 931.) Thus, the Legislature madeclear that section 943 did not contain an exclusivelist of “exceptions” to SB 800 becausesection 931 recognizes that claims not covered by SB 800 include, “without limitation,” causes of action for “personalinjuries, class actions, other statutory remedies, or fraud-based claims,...” 19 made such a wide-ranging exception to the restrictive language of the first sentence of section 943, we would have expectedit to do so expressly” as it did in the exception for condominium conversions.” (/bid.; see also typed opn., p. 9 [“The language limiting a claimant’s claims or causesofaction does not make an exception for commonlawtort causes of action where the defect has caused property damage”].) But the established rule of statutory construction is to assume the commonlaw applies unless expressly stated otherwise, not the other way around. The McMillin court also criticizes Liberty Mutualfor ignoringthefirst sentence of section 943, which provides that “no other cause of action for a claim covered bythis title or for damages recoverable under Section 944is allowed.” (§ 943, subd. (a); see typed opn., p. 13.) But the Liberty Mutual court did not ignore that statutory provision; rather that provision, like section 896, simply refers to claims made pursuant to the Right to Repair Act. Section 896 states that the Act applies to “any action seeking recovery of damages arising out of, or related to deficiencies” for violations of specified construction standards. This is because the Act establishes a set of building standards for new residential construction and provides homeowners with a statutory cause of action for violation of those standards without having to showthe violation caused damageto other property or personal injury. As the 3! Section 896 provides in pertinent part: “This title applies to original construction intendedto be sold as an individual dwelling unit. As to condominium conversions,this title does not apply to or does not supersede any other statutory or common law.” This provision simply meansthat the Legislature did not abrogate the economic loss rule for condominium conversionsasit did for single residential dwellings. 20 Liberty Mutualcourt properly noted, section 896 simply “refers to any action that is covered by the Right to Repair Act”; it does not establishthatit is the exclusive remedy for construction defects claims that cause actual damage or injury. (Liberty Mutual, supra, 219 Cal.App.4that p. 108.) Section 944 is similarly limited to “a claim for damages”that “is made underthis title,” i.e., pursuant to the Right to Repair Act. (§ 944, emphasis added.) Indeed, the language “any action” in section 896 cannot mean,as the Fifth Appellate District found, that the Act applies to a// construction defect claims. (See typed opn., pp. 9, 15.) Other provisions in the Right to Repair Act expressly contemplate the existence ofconstruction defects claimsthat are not covered bythe Act. (See, e.g., § 931 [SB 800 claim combined with other causes of action]; § 943 [if a non-covered claim yields damages that are duplicative ofa covered claim for violation ofconstruction standards, damages “awarded for the items set for in Section 944 in such other cause of action shall be reduced by amounts recovered pursuant to Section 944 for violation of the standards set forth in this title”]; § 945.5 [setting forth affirmative defenses that can be made “in response to a claimed violations” while expressly preserving, under subdivision (h), common law defenses for “any causes ofaction to whichthis statute does not apply’].) In sum, Liberty Mutual’s analysis of the Right to Repair Act is the correct interpretation and should be adopted by this Court. D. A Contrary Holding Will Create An Irreconcilable Conflict Between HomeownerInsurers And Builders. 21 Asthe court in Liberty Mutual appreciated,the prelitigation procedure of the Right to Repair Act (sections 910-938) makes no sense where a homeownersuffers an unexpected, one-time catastrophic loss, resulting in immediate property damage or bodily injury. (Liberty Mutual, supra, 219 Cal.App.4th at p. 106.) Where an immediate loss is suffered, rapid intervention maybe requiredto prevent further damageor injury, or to mitigate losses. The Act’sprelitigation procedure, however, enables a builder to delay its repair obligations based on the following mandatory timetable: e The homeownersubmits a written claim for a violation of standards. (§ 910.) e Within 14 days, the builder must acknowledgereceipt of the claim. (§ 913.) e Within 14 days ofthe acknowledgment, the builder must complete its inspection of the claimed unmetstandards. (§ 916, subd. (a).) e Within 3 days of the first inspection, the builder may request a second inspection, which must be conducted within 40 days. (§ 916, subd.(c).) e Within 30 daysofthe last inspection, the builder “may” offer in writing to repair some, all, or none of the violations. (§ 917.) e If the offer to repair has been accepted by the homeowner, but the homeownerobjects to the contractor designated to conductthe repairs,the builder has 35 days to provide the homeownerwith3 alternative contractors. (§ 918.) © If the homeowner elects to receive alternative contractors, the builder is entitled to an additional non- invasive inspection within 20 days. (§ 918.) e Within 35 days after the homeowner’s election to receive alternative contractors, the builder must present the homeowner with a choice of contractors. (§ 918.) 22 e Once the homeowneragrees to the repair, the repairs must commencewithin 14 days. (§ 921.) e After commencementof repairs, the builder must make “every effort . . . to complete the repairs within 120 days.” (§ 921.) Thus, under the Right to Repair Act, a builder has almost a full year to addressa violation ofconstruction standards-- a potentially reasonable amount of time if the violation has not resulted in property damage or bodily injury. However,if the Right to Repair Act provides the exclusive remedy where a homeownersuffers an unexpected catastrophic loss resulting in immediate property damageor bodily injury, this detailed time frame is unfeasible and creates an irreconcilable conflict between builders and homeowners’insurers who must expeditiously address covered losses, whetherornotthe builder has been requiredto act. Regulations adopted by the California Departmentof Insuranceset out detailed timelimits for insurers to respond to insured’s claims. Uponreceiving notice of a claim, an insurer “shall immediately, but in no event more than fifteen (15) calendar days later,” (1) acknowledge receipt; (2) provide the insured with necessary claim formsandinstruction; and (3) begin investigating the claim. (10 Cal.C.Regs. § 2695.5(e).) An insurer must accept or deny the claim, in whole orin part, “immediately, but in no event more than forty (40) calendar days later.” (10 Cal.C.Regs. § 2695.7(b).) Once coverage is determined, an insurer “shall immediately, but in no event more than thirty (30) calendar days later, tender payment or otherwise take action to perform its claim obligation.” (10 Cal.C.Regs. § 2695.7(h).) Additionally, “[n]o insurer shall delay or deny settlement of a first party claim on the basis that 23 responsibility for payment should be assumedbyothers,” except as otherwise providedbystatute, regulation or policy. (10 Cal. C. Regs. § 2695.7(e).) Accordingly, where the Legislature has provided builders almost a year to remedyviolations of construction standards, a homeowner’s insurer has no more than seventy days to adjust existing property losses and conductrepairs ofcovered claims. Moreover, an insurance company’sfailure to act promptly can result in an action for bad faith.’ (See Amerigraphics, Inc. v. Mercury Cas. Co. (2010) 182 Cal.App.4th 1538, 1550; Fleming v. Safeco Ins. Co. of America (1984) 160 Cal.App.3d 31, 37.) Thus, to avoid exposure to claims of bad faith, insurance companies will be forced to immediately repair covered losses and will become the de facto insurer of the builder -- a result not intended by the Legislature. As the court in Liberty Mutual recognized, “exclusive compliance with the notice provisions of the Act under those circumstances would effectively extinguish the subrogation rights of all homeowners’ insurers who promptly covertheir insureds’ catastrophic losses.” (Liberty Mutual, supra, 219 Cal.App.4th at p. 106.) In other words, in a catastrophic loss situation, once a homeowner fulfils his obligation under a policy and makesa timely covered claim, the homeowner’s insurer cannot wait for the builder to act under the Right to Repair Act. If the property damageis significant, the homeowner’s insurer would be acting in bad faith if it did not act immediately to mitigate the sy “Dilatory practices may also exposethe insurer to administrative proceedings andpenalties for violating regulations adopted by the California Department of Insurance.” (Croskey, et al., Cal. Prac. Guide: Insurance Litigation (The Rutter Group 2015), { 12:926.) 24 damageandfulfil its contractual obligations. In manycases,at the outset of a loss, the insurer will not know whetherthe builder will accept responsibility for the damageorwhetherthe damage wascaused by another responsible third party. The insurer, nonetheless, must respondto adjustthe loss regardless of the actions or inactions (or even the identity) of a responsible third party. If the insurer’s immediate acts of investigating and remediating covered losses then precludes the builder from exercisingits statutory rights under the Act -- and the insurer’s only avenue of recovery is under the Act -- the insurer’s subrogation rights cease to exist. In an effort to downplay the conflict between builders and insurers, petitioners assert that homeowners do not need to wait for builders to respond “before beginning reasonable mitigation efforts in connection with a catastrophic loss.”” But having the homeowner/insurer begin remediation and/orrepair efforts would defeat the statutory purposeofallowing the builder to inspect and offer to repair. (See KB Home Greater Los Angeles, Inc. v. Superior Court (2014) 223 Cal.App.4th 1471, 1477 [“completing repairs q McMillin’s Answer Brief On The Merits, p. 32. Petitioners support this argumentbyasserting that “taking reasonable mitigation actionis the homeowner’s/insurer’s duty under section 945.5(b).” (/bid.) That section, however, does not impose a duty on homeownersto undertake repairs while waiting for a builder to respond. In fact, it states the opposite: a builder may be excused from liability for damages “[t]o the extent it is caused by a homeowner’s unreasonable failure to minimize or prevent those damages in a timely manner, including the failure of the homeownerto allow reasonable and timely accessfor inspections and repairs underthistitle. This includes the failure to give timely notice to the builder after discovery of a violation, but does not include damages due to the untimely or inadequate response ofa builder to the homeowner’s claim.” (§ 945.5, subd. (b), emphasis added.) 25 before giving notice ofdefect turns the prelitigation procedure on its head and precludes the builder from inspecting and making an offer to repair’].) In sum, the Right to Repair Act provides a statutory scheme which enables builders to avoid litigation by repairing violations of building standards. It is designed to allow builders to repair defects before they result in property damageor personal injury. The Act was not designed to address unexpected catastrophic losses which result in immediate property damage and/or personal injuries. The Legislature did not intend for the Actorits pre- litigation requirementsto control where the construction defect causes property damage requiring immediate repair or remediation. 26 Il. CONCLUSION For the above reasons, this Court should hold that the Right to Repair Act does not preclude a homeowner’s common law causes of action for constructive defects where actual damage has occurred. Accordingly, having asserted no claim underthe Right to Repair Act, real parties in interest did not have to comply with the prelitigation procedures of that Act. Dated: July 15, 2016 Respectfully submitted, LAW OFFICESOFBRIAN J. FERBER, INC. Brian J. Ferber BENEDON & SERLIN, LLP Gerald M.Serlin WendyS.Albers onle _blus (Gus) Wendy “4 ers’ Attorneysfor Amici Curiae LAW OFFICESOFBRIAN J. FERBER, INC. and BENEDON & SERLIN, LLP 27 CERTIFICATE OF WORD COUNT [Cal. Rules ofCourt, Rule 8.204(c)())] In accordance with rule 8.204(c)(1) of the California Rules of Court, the undersigned herebycertify that this AMICI CURIAE BRIEF OF LAW OFFICES OF BRIAN J. FERBER, INC. AND BENEDON & SERLIN, LLP contains 5,645 words, as determined by the Word Perfect x7 word processing system used to prepare this brief, excluding the tables, the cover information, the signature block, and the certificates. Dated: July 15, 2016 Respectfully submitted, LAW OFFICESOF BRIAN J. FERBER, INC. Brian J. Ferber BENEDON & SERLIN, LLP Gerald M.Serlin Wendy S. Albers Wendyflbers Attorneysfor Amici Curiae LAWOFFICESOFBRIAN J. FERBER,INC. and BENEDON & SERLIN, LLP 28 PROOF OF SERVICE (C.C.P. § 1013a) STATE OF CALIFORNIA, COUNTY OF LOS ANGELES I am overthe age of eighteen (18) years and not a party to the within action. I am a resident of or employed in the county where the mailing took place. My business address is 22708 Mariano Street, Woodland Hills, California 91367-6128. On July 15, 2016, I served the AMICI CURIAE BRIEF OF LAW OFFICES OF BRIAN J. FERBER, INC. AND BENEDON & SERLIN, LLP, by enclosing a true and correct copy thereof in a sealed envelope as follows: [X] BY FIRST-CLASSU.S. MAIL: I enclosed the document(s) in a sealed envelope/package addressed to the addressee(s) designated and placed it for mailing, following our ordinary business practices. I am readily familiar with the mailing practice ofmy place ofemploymentin respect to the collection and processing of correspondence and pleadings for mailing. It is deposited with the United States Postal Service on that same day in the ordinary course of business with postage fully prepaid. [X] PROOF OF SERVICE BY ELECTRONIC TRANSMISSION to Supreme Court using the Court’s CM/ECF system (http://www.courts.ca.gov/24590.htm), and by FedEx Priority Overnight service. Clerk, Supreme Court of California San Francisco Office 350 McAllister Street San Francisco, California 94102-7303 (415) 865-7000 The envelope(s) was/were addressed and mailedto all interested parties as follows: Hon. David R. Lampe Respondent Court Superior Court of Kern County 1415 Truxtun Avenue, Suite 212 Bakersfield, California 93301 Phone: (661) 868-5393 29 Andrew M.Morgan [SBN 266833] Borton Petrini, LLP 5060 California Avenue, Suite 700 Bakersfield, California 93309 Phone: (661) 322-3051 Fax: (661) 322-4628 E-mail: amorgan@bortonpetrini.com Counselfor Petitioners McMillan Albany, LLC, and McMillin Park Avenue, LLC Aaron M.Gladstein [SBN 266287} Mayo L. Makarczyk [SBN 203035} Milstein Adelman LLP 2800 Donald Douglas Loop North Santa Monica, California 90405 Phone:(310) 396-9600 Fax: (310) 396-9635 E-mail: agladstein@majfw.com E-mail: mmakarczyk@majfw.com Attorneysfor Real Parties in Interest Carl Van Tassell and Sandra Van Tassell Alan H. Packer [SBN 124724] Newmeyer & Dillon LLP 1333 North California Boulevard Suite 600 Walnut Creek, California 94596 Phone: (925) 988-3200 Fax: (925) 988-3290 E-mail: alan.packer@ndlf.com Attorneysfor Amicus Curiae Leading Builders ofAmerica Kathleen F. Carpenter [SBN 124932] Donahue Fitzgerald LLP 1646 North California Boulevard Suite 250 Walnut Creek, California 94596 Phone: (925) 746-7770 Fax: (925) 746-7776 E-mail: kcarpenter@donahue.com Attorneysfor Amicus Curiae California Building Industry Association Susan M. Benson [SBN 146837]Benson Legal, APC6345 Balboa Boulevard, Suite 365Encino, California 91316Phone: (818) 708-1250Fax: (818) 708-1444E-mail: sbenson@bensonlegal.net Attorneysfor Amicus CuriaeThe National Association ofSubrogation Professionals 30 Jason P. Williams [SBN 232371] Attorneysfor Amicus Curiae Williams | Palecek Law Group, LLP The National Association of 3170 Fourth Avenue, Suite 400 Subrogation Professionals San Diego, California 92103-5850 Phone: (619) 346-4263 Fax: (619) 346-4291 E-mail: jwilliams@wplgattorneys.com Civil Clerk of the Court Appellate Court Fifth District Court of Appeal 2424 Ventura Street Fresno, California 93721 Phone: (559) 445-5491 [X] (State) I declare under penalty of perjury underthe laws ofthe State ofCalifornia that the foregoingis true and correct. Executed on July 15, 2016, at Woodland Hills, California. Wo)Bon— Mieko L. Brown 31